Strat Quality Cost Concepts Exercises

Quality Cost Concepts - Review of Concepts and Exercises
TRUE/FALSE QUESTIONS
1. Productivity is measured by the quantity of good output generated from a specific amount of input
during a time period.
ANS: T DIF: Easy OBJ: 16-1
2. Inspection of incoming inventory is a value-adding activity.
ANS: F DIF: Moderate OBJ: 16-1
3. Storage of unneeded inventory is a non-value added item.
ANS: T DIF: Moderate OBJ: 16-1
4. Quality control places the primary responsibility for product or service quality on the provider.
5. Grade refers to a product meeting the highest number of a customer’s needs at the lowest possible cost.
6. Grade refers to one of many quality levels that a product or service has relative to the inclusion or
exclusion of certain characteristics to satisfy customer needs.
7. Value refers to a product meeting the highest number of a customer’s needs at the lowest possible cost.
8. Strategic benchmarking is industry specific in its approach.
9. Process benchmarking is concerned with how top-ranked companies achieve their results.
10. Results benchmarking creates the risk for a company to become stagnant.
11. Process benchmarking creates the risk for a company to become stagnant.
12. A total quality system should place an emphasis on inspection.
1
13. A total quality system should place an emphasis on prevention and continuous improvement.
14. Total quality management requires that an organization analyze the costs and benefits of each of its
customer segments.
15. When implementing TQM, an organization should establish long-term relationships with preferred
suppliers.
16. When implementing TQM, an organization should establish long-term relationships with as many
suppliers as possible.
17. Reworking a product is an appraisal cost.
18. Reworking a product is an internal failure cost.
19. Testing and adjusting manufacturing equipment is a prevention cost.
20. Testing and adjusting manufacturing equipment is an appraisal cost.
21. Replacing a product after it has been sold is an external failure cost.
22. Conducting a quality audit is an appraisal cost.
23. Conducting a quality audit is a prevention cost.
24. Pareto analysis is frequently used to aid management in deciding where to concentrate quality
prevention cost dollars.
2
25. The balanced scorecard can be used to provide information on quality in an organization.
26. Total quality management (TQM) requires the commitment of all individuals within an organization.
27. ISO 9000 registration is required for regulated products sold in the United States.
28. ISO 9000 registration is required for regulated products sold in the European Union.
COMPLETION
1. The quantity of good output generated from a specific of output during a time period is referred to as
______________________.
ANS: productivity
DIF: Easy OBJ: 16-1
2. The process of investigating, comparing, and evaluating a company’s products or services against
those of other companies is referred to as ______________________.
ANS: benchmarking
DIF: Easy OBJ: 16-2
3. A process in which an end product or service is examined using reverse engineering is referred to as
___________________________________.
ANS: results benchmarking
DIF: Moderate OBJ: 16-2
4. A benchmarking process that is non-industry specific and focuses on how companies compete is
referred to as ___________________________________.
ANS: strategic benchmarking
5. A benchmarking process that focuses on how best-in-class companies achieve their results is referred
to as ___________________________________.
ANS: process benchmarking
3
6. Costs that preclude product defects resulting from flaws in processing are referred to as
______________________________.
ANS: prevention costs
DIF: Easy OBJ: 16-4
7. Costs of monitoring and compensating for mistakes not eliminated through prevention activities are
referred to as _____________________________________.
ANS: appraisal costs
8. Costs incurred to correct defects in products prior to shipment are referred to as

________________________________.
ANS: internal failure costs
9. Costs incurred to correct defects in products after shipment are referred to as

________________________________.
ANS: external failure costs
10. The two costs of compliance are __________________________ and _______________________.
ANS: prevention costs; appraisal costs
11. The two costs of noncompliance are __________________________ and

_______________________.
ANS: internal failure costs; external failure costs
MULTIPLE CHOICE
1. An all-inclusive definition of quality views it as the ability of products/services to

a. only meet internal design specifications.
b. meet the customer's stated or implied needs.
c. be produced using all value-added production activities.
d. be produced with no rework costs.
ANS: B
4
2. Which of the following is false as it relates to quality?
a. Quality is the total of all characteristics of a product or service that impacts on its ability to
meet the needs of a specific person.
b. Quality must always be viewed from the user's perspective.
c. Quality is never concerned with what the user thinks, feels, or deems important.
d. The definition of quality has evolved through time and is more currently comprehensive
than in the past.
ANS: C
3. Productivity is measured by the

a. total quantity of output generated from a limited amount of input during a time period.
b. quantity of good output generated from a specific amount of input during a time period.
c. quantity of good output generated from the quantity of good input used during a time
period.
d. total quantity of input used to generate total quantity of output for a time period.
ANS: B
4. Which of the following can be used to indicate factors that slow down or cause unnecessary work in a
process?
a. activity analysis
b. total quality management
c. cost of quality
d. all of the above
ANS: A
5. Which of the following are undesirable from a consumer perspective but are frequently needed?
a. value-neutral activities
b. value-added activities
c. non-value-added activities
d. none of the above
ANS: C DIF: Easy OBJ: 16-1
6. Which of the following would typically be viewed as non-value-added activities?
Moving Inspecting Attaching product Storing

material raw material components finished goods
a. yes yes yes no

b. no no no yes
c. no yes no yes
d. yes yes no yes
ANS: D DIF: Easy OBJ: 16-1
7. __________ places the primary responsibility for quality on the maker or producer.
a. Pareto analysis
b. Quality control
c. Benchmarking
d. Activity analysis
ANS: B DIF: Easy OBJ: 16-1
5
8. All attempts to reduce variability and defects in products reflect the implementation of
a. activity analysis.
b. statistical process control.
c. quality control.
d. control charts.
9. Control charts are appropriate devices in

a. total quality control.
b. statistical process control.
c. total quality management.
d. all of the above.
ANS: D DIF: Moderate OBJ: 16-1
10. A control chart graphs

a. actual process results relative to a range of acceptable variation.
b. expected process results relative to upper and lower control limits.
c. actual process results relative to value-added and non-value-added activities.
d. the cost of process malfunctions relative to the cost of reducing process variations.
ANS: A DIF: Easy OBJ: 16-1
11. The addition or removal of product or service characteristics to satisfy additional needs, especially
price, reflect the ________ of a product or service.
a. value
b. grade
c. quality
d. durability
ANS: B DIF: Moderate OBJ: 16-1
12. Value reflects the ability of a product to

a. provide the best quality at any price.
b. have all possible product and service characteristics.
c. meet the majority of a customer's needs at the lowest possible price.
d. have the longest technical or service life and the best warranty.
ANS: C DIF: Moderate OBJ: 16-1
13. Comparing the way a "best-in-class" company performs a specific activity (such as distribution) is
called
a. process benchmarking.
b. results benchmarking.
c. total quality management benchmarking.
d. SPC benchmarking.
6
14. Benchmarking allows a company to
a. identify its strengths and weaknesses.
b. imitate those ideas that are readily transferable.
c. improve on methods in use by others.
15. Benchmarking against direct competitors creates the risk of

a. creating products or services with identical specifications.
b. becoming stagnant relative to process improvements.
c. being taken over by the competitors to prevent a loss of ideas.
16. Reverse engineering is used in

a. statistical process control.
b. process benchmarking.
c. results benchmarking.
d. price fixing.
17. Benchmarking against noncompetitors is extremely important in

a. process benchmarking.
b. results benchmarking.
c. reverse engineering.
ANS: A DIF: Moderate OBJ: 16-2
18. Benchmarking
identifies "best-in-class" companies analyzes the "negative gap"
a. yes no
b. no yes
c. yes yes
d. no no
19. Benchmarking does which of the following activities relative to a "best-in-class" (BIC) company?
Compares BIC's Copies BIC's Improves on

products and products and BIC's products
processes processes and
with own directly processes
a. yes yes yes

b. yes no no
c. no no yes
d. yes no yes
7
20. Which of the following is not a step in benchmarking procedures?
a. analyze the "positive gap"
b. engage in continuous improvement
c. analyze the "negative gap"
d. identify "best-in-class" companies
21. Which of the following is not a critical element in a total quality management system?
a. employee involvement
b. activity-based costing
c. continuous improvement
d. problem prevention emphasis
22. A total quality system should be designed to promote a reorientation of thinking from an emphasis on
a. internal quality improvements to an emphasis on external benchmarking.
b. the planning process to an emphasis on the performance evaluation process.
c. inspection to an emphasis on prevention.
d. process benchmarking to an emphasis on results benchmarking.
23. Which of the following is the first element of knowledge needed by a company wanting to pursue total
quality management?
a. what the company's customers want
b. who the company's customers are
c. how the company's processes are designed
d. what the components of the company's product are
24. Total quality management is inseparable from the concept of

a. ISO certification.
b. centralized organizational structure.
c. continuous improvement.
d. the product life cycle.
25. A company will not achieve world-class status unless a quality focus
a. allows that company to achieve one or more major quality awards.
b. becomes an integral part of the organization's culture.
c. emphasizes the elimination of all quality costs for compliance and noncompliance.
d. has been mandated by management for workers to pursue.
8
26. Which of the following statements is true?
a. The more customers a company has, the better off the company is.
b. A company should spare no expense to provide customer satisfaction.
c. Most customers stop doing business with a company because of poor product or service
quality.
d. Cost-benefit analysis can help identify customers that cost more than they are worth to the
company.
27. The four categories of product quality costs are

a. external failure, internal failure, prevention, and carrying.
b. external failure, internal failure, prevention, and appraisal.
c. external failure, internal failure, training, and appraisal.
d. warranty, product liability, training, and appraisal.
28. The number of product defects discovered by consumers is what kind of performance indicator?
Qualitative Quantitative Financial Nonfinancial
a. yes no no yes
b. no yes no yes
c. no yes yes no
d. yes no no yes
29. Money spent on employee training is a

a. prevention cost.
b. appraisal cost.
c. empowerment cost.
d. Pareto cost.
30. Production quality is affected by

a. worker productivity.
b. the amount of failure costs incurred.
c. worker skill level.
d. just-in-time suppliers.
31. Mistakes not eliminated by prevention costs may cause
appraisal costs failure costs
a. no no
b. no yes
c. yes no
d. yes yes
9
32. Product quality includes all of the following except
a. appeal.
b. performance.
c. durability.
d. price.
33. Recalls are fairly common events for automobile manufacturers. The costs of recalling and repairing a
car create
internal failure costs external failure costs prevention costs
a. yes yes no
b. yes yes yes
c. no yes no
d. yes no yes
34. An appraisal cost is created by

a. installing automated technology.
b. reworking products.
c. verifying procedures.
d. rescheduling and setup.
35. Compliance costs include
prevention costs appraisal costs internal failure costs
a. yes no no
b. no yes yes
c. yes yes no
d. yes yes yes
36. Management can decide where to concentrate its quality prevention dollars using
a. statistical process control charts.
b. just-in-time inventory systems.
c. a feedback loop.
d. Pareto analysis.
37. Historically, the cost of quality has been

a. included in account balances for items such as Work in Process Inventory and marketing
expenses.
b. detailed in various "cost of quality" account balances on the Income Statement.
c. immaterial because no accounts were developed to detail these amounts.
d. generally spent in the prevention rather than the appraisal category.
10
38. A significant cost of quality that is not recorded in the accounting records is the
a. failure cost for a customer complaint center.
b. cost of reworking products to bring them up to specification.
c. opportunity costs of forgone future sales.
d. appraisal cost for product equipment.
39. A cost of quality report compares current period quality costs in specified categories to
a. last year's quality costs.
b. current period budgeted quality costs.
c. total quality costs for the period.
d. both a and b.
40. Which of the following is not one of the three objectives of a quality program?
a. Product quality should be consistent to always meet the purchaser's need(s).
b. A quality program should give management confidence that the quality is and will be at a
constant level.
c. A quality program should give customers confidence that the intended quality will be
achieved in products.
d. Product quality should always vary because customers change their wants and needs over
time.
ANS: D DIF: Moderate OBJ: 16-6
41. The most visible embodiment of total quality management in the United States is
a. being awarded the Deming Prize.
b. achieving ISO 9000 certification.
c. meeting industry standards.
d. receiving the Baldrige Award.
42. Which of the following are categories judged for the Baldrige Award?
Business Use of SPC and Customer

Benchmarking results Pareto analysis focus Leadership
a. no yes no yes yes

b. yes yes yes yes yes
c. yes yes no yes no
d. no no no no no
43. The ISO 9000 series refers to

a. international guidelines for quality standards.
b. provisions regarding benchmarking activities in the European Union.
c. guidelines for appropriate expenditures on the various categories of quality costs.
11
44. The ISO 9000 standards
a. indicate which companies' products are better than those of competitors.
b. allow management to decide how to meet the standards for quality assurance.
c. include specific directives about product design, material procurement, and environmental
responsibilities.
d. compose a program of quality assurance under which companies are registered by the
International Organizational for Standardization.
45. A quality audit involves a review of
manufacturing cost of quality

processes quality standards documentation
a. yes yes yes

b. no yes yes
c. no no no
d. yes no yes
46. Registration under ISO 9000 is

a. required for all companies doing business internationally.
b. required for all European companies doing business in Europe.
c. not required for U.S. companies unless they use European suppliers.
d. required for all companies producing regulated products to be sold in the European Union.
Variance Corporation
Variance Corporation is a manufacturer of a versatile statistical calculator. The following information

is a summary of defective and returned units for the previous year.
Total defective units 1,000

Number of units reworked 750
Number of customer units returned 150
Profit for a good unit P40
Profit for a defective unit P25
Cost to rework a defective unit P10
Cost of a returned unit P15
Total prevention cost P10,000
Total appraisal cost P5,000
47. Refer to Variance Corporation. The profit lost by selling defective units not reworked is
a. P25,000.
b. P15,000.
c. P18,750.
d. P3,750.
ANS: D
250 units not reworked * P15 incremental difference =
P3,750
12
48. Refer to Variance Corporation. The total rework cost is

a. P7,500.
b. P15,000.
c. P2,500.
d. P3,750.
ANS: A
750 units reworked * P10/unit rework cost = P7,500
49. Refer to Variance Corporation. The cost of processing customer returns is

a. P9,000.
b. P2,500.
c. P22,500.
d. P2,250.
ANS: D
150 returned units * P15/unit = P2,250
50. Refer to Variance Corporation. The total failure cost is

a. P15,000.
b. P13,500.
c. P11,250.
d. P8,250.
ANS: B
750 units reworked * P10/unit P 7,500
150 units returned * P15/unit 2,250
250 units not reworked * P15/unit 3,750
Total P13,500
======
51. Refer to Variance Corporation. The total quality cost is

a. P15,000.
b. P15,750.
c. P28,500.
d. P11,250.
ANS: C
Total failure costs P13,500
Total prevention costs 10,000
Total appraisal costs 5,000
Total quality costs P28,500
======
13
52. Refer to Variance Corporation. The profit lost by selling defective units to Greenstein Company totals
P1,440. The total rework cost for 700 units is P28,000. The difference between the profit earned on a
good unit and a defective unit is P12. How many total defective units did Variance Corporation
produce?
a. 120
b. 740
c. 736
d. 820
ANS: D
Defective units sold P1,440/P12 per unit 120 units
Units reworked 700 units
Total defective units 820 units
=======
53. Denison Company's cost of compliance is P58,000. Appraisal cost is P21,000 and failure cost is
P32,000. The company's total quality cost is
a. P53,000.
b. P79,000.
c. P90,000.
d. P111,000.
ANS: C
Cost of compliance P58,000
Failure cost 32,000
Total quality cost P90,000
======
14
PROBLEM SOLVING
Cokesbury Corporation
Cokesbury Corporation is a manufacturer of electronic blood pressure monitors for

home use. The following is a summary of quality costs for the first year of operations.
Total defective units 1,500

Number of units reworked 800
Number of customer units returned 200
Profit for a good unit P50
Profit for a defective unit P30
Cost to rework a defective unit P12
Cost of a returned unit P20
Total prevention cost P17,500
1. Refer to Cokesbury Corporation. Compute the profit lost by selling defective units not reworked.
ANS:
Z = (D - Y) (P1 - P2 ) = (1,500 - 800)(P50 - P30) = P14,000
2. Refer to Cokesbury Corporation. Compute the total rework cost.
ANS:
R = (Y) (r) = (800) (P12) = P9,600
3. Refer to Cokesbury Corporation. Compute the cost of processing customer returns.
ANS:
W = (Dr) (w) = (200) (P20) = P4,000
4. Refer to Cokesbury Corporation. What is the total failure cost?
ANS:
F = Z + R + W = P14,000 + P9,600 + P4,000 = P27,600
5. Refer to Cokesbury Corporation. Determine the total quality cost.
ANS:
15
T = K + A + F = P17,500 + P9,500 + P27,600 = P54,600
Seating Concepts
Seating Concepts has just finished its first year of business. Seating Concepts makes decorative
outdoor furniture. The firm manufactured 2,500 pieces of furniture during the year: 2,400 were sold at
garden centers for P456,000; 100 pieces were defective and could only be sold as scrap metal (25
pounds each and can be sold for P2.50 per pound). No defective units could be reworked. During the
year the following costs were incurred:

Total prevention cost 25,700
Total production cost 250,000
Total selling and administrative cost 70,000
6. Refer to Seating Concepts. Compute the total profits lost by the company from selling scrap units
during its first year of operations.
ANS:
Price for good units: P456,000 ÷ 2,400 = P190
Price for defective units: P6,250* ÷ 100 = P 62.50
*25 pounds  100 pieces  P2.50/pound.
Profits lost: 100  (P190.00 - P62.50) = P12,750
7. Refer to Seating Concepts. Compute the total quality cost incurred by the company during the first
year of operations.
ANS:
Prevention cost P25,700

Appraisal cost 9,000
Total failure cost 12,750
P47,450
DIF: Easy OBJ: 16-4
16

Strat Quality Cost Concepts Exercises

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Strat Quality Cost Concepts Exercises

Uploaded by

Copyright:

Available Formats

Quality Cost Concepts - Review of Concepts and Exercises

ANS: T DIF: Easy OBJ: 16-1

2. Inspection of incoming inventory is a value-adding activity.

ANS: F DIF: Moderate OBJ: 16-1

3. Storage of unneeded inventory is a non-value added item.

ANS: T DIF: Moderate OBJ: 16-1

ANS: T DIF: Easy OBJ: 16-1

ANS: F DIF: Moderate OBJ: 16-1

ANS: T DIF: Moderate OBJ: 16-1

ANS: T DIF: Moderate OBJ: 16-1

8. Strategic benchmarking is industry specific in its approach.

ANS: F DIF: Moderate OBJ: 16-2

ANS: T DIF: Moderate OBJ: 16-2

ANS: T DIF: Moderate OBJ: 16-2

ANS: F DIF: Moderate OBJ: 16-2

12. A total quality system should place an emphasis on inspection.

ANS: F DIF: Moderate OBJ: 16-3

ANS: T DIF: Moderate OBJ: 16-3

ANS: T DIF: Moderate OBJ: 16-3

ANS: T DIF: Moderate OBJ: 16-3

ANS: F DIF: Moderate OBJ: 16-3

17. Reworking a product is an appraisal cost.

ANS: F DIF: Moderate OBJ: 16-4

18. Reworking a product is an internal failure cost.

ANS: T DIF: Moderate OBJ: 16-4

19. Testing and adjusting manufacturing equipment is a prevention cost.

ANS: T DIF: Moderate OBJ: 16-4

20. Testing and adjusting manufacturing equipment is an appraisal cost.

ANS: F DIF: Moderate OBJ: 16-4

ANS: T DIF: Moderate OBJ: 16-4

22. Conducting a quality audit is an appraisal cost.

ANS: T DIF: Moderate OBJ: 16-4

23. Conducting a quality audit is a prevention cost.

ANS: F DIF: Moderate OBJ: 16-4

ANS: T DIF: Moderate OBJ: 16-5

ANS: T DIF: Easy OBJ: 16-6

ANS: T DIF: Easy OBJ: 16-7

ANS: F DIF: Moderate OBJ: 16-8

ANS: T DIF: Moderate OBJ: 16-8

DIF: Easy OBJ: 16-1

DIF: Easy OBJ: 16-2

ANS: results benchmarking

DIF: Moderate OBJ: 16-2

ANS: strategic benchmarking

DIF: Moderate OBJ: 16-2

ANS: process benchmarking

ANS: prevention costs

DIF: Easy OBJ: 16-4

ANS: appraisal costs

DIF: Moderate OBJ: 16-4

8. Costs incurred to correct defects in products prior to shipment are referred to as

ANS: internal failure costs

DIF: Moderate OBJ: 16-4

9. Costs incurred to correct defects in products after shipment are referred to as

ANS: external failure costs

DIF: Moderate OBJ: 16-4

10. The two costs of compliance are __________________________ and _______________________.

ANS: prevention costs; appraisal costs

DIF: Moderate OBJ: 16-4

11. The two costs of noncompliance are __________________________ and

ANS: internal failure costs; external failure costs

DIF: Moderate OBJ: 16-4

1. An all-inclusive definition of quality views it as the ability of products/services to

10. The two costs of compliance are ____ and _.